Tuesday, 30 June 2009

Daily Mail"We all know that whichever party wins will have to impose huge spending cuts or tax increases - or both - if we're to begin to pay off the terrifying debts piling up for our children. Yet the Prime Minister remains determined to go on peddling the lie that cuts are unnecessary.The outrageous decision to postpone the autumn review insults our intelligence - and makes a mockery of the election. ...For a decade, New Labour condemned as 'racist' the Mail and anyone else who dared suggest that asylum seekers and other migrants were jumping the housing queue.Yet here is the Prime Minister, in the death-throes of New Labour, finally saying he will reverse this (while characteristically failing to specify how).This is the politics of desperation. The sad truth is that this Government has abandoned any attempt to lay the facts before the voters, retreating into a surreal world of secrecy and lies."

Telegraph""Deflation in June will be no surprise to the ECB, but the bank needs to be on its guard that it does not become established," said economist Howard Archer at consultants IHS Global Insight."

Telegraph"We were expecting something bad. But this was truly more horrific than even the most pessimistic among us expected. After the revelation a few weeks ago that the construction sector suffered an almost unprecedented collapse in output in the first quarter there was little doubt that the Office for National Statistics’ estimate that the economy contracted by 1.9pc in Q1 was too generous.But the worst most economists thought that could be cut to was around 2.2pc. News that it was in fact a shocking 2.4pc contraction came as a surprise this morning, causing judders in both the equity and gilt markets."

Daily Mail"Gordon Brown has chosen to lie rather than tell the truth. He has chosen to act in the partisan interests of New Labour rather than the country as a whole. He has chosen to pretend that there is no need for spending cuts in the hard years ahead. ....Over the past few weeks, it started to dawn on Gordon Brown that it would be deeply embarrassing if Darling were to go ahead and announce future spending plans. By doing so he would set out for all to see how disastrous the financial situation has become...Yesterday's announcement that the Comprehensive Spending Review has been abolished shows that Gordon Brown has won the battle and that the fight for prudence has been finally lost.This is very frightening indeed at a moment when every respectable financial institution in the world - the International Monetary Fund, the World Bank and yesterday the Organisation for Economic Cooperation and Development - is warning us that we are chronically overspending."

Monday, 29 June 2009

The Times"In effect, therefore, the ECB has been lending money by the shed-load to governments, with commercial banks acting merely as a fig leaf for what would otherwise be seen as a blatant monetisation of the most insolvent European countries’ public debt. In normal circumstances, this fig leaf might at least have theoretically protected the virginal purity of the ECB by interposing the commercial banks’ own balance sheets between the government borrowers and the ECB. ....and the ECB’s balance sheet is a joke, since the Greek, Irish and Spanish banks queuing up for ECB funding are near-insolvent and would certainly be insolvent were it not for the limitless supply of money they are getting, in exchange for dubious collateral, from the ECB itself. In short, the commercial bank intermediaries interposed between the ECB printing presses and European governments’ borrowings should not even be described as a fig leaf — more like the climactic G-string in the world’s most expensive strip show."

Telegraph"In its annual survey of the British economy, the Paris-based institution told the Government to slash the size of its deficit far more than it currently intends or face major problems in the coming years. It came as the Bank for International Settlements (BIS) warned that cutting the record deficits caused by the crisis will be "the main task of policymakers for years to come". ...It came amid speculation that the Government has postponed the expected Spending Review this year, with Shadow Chancellor George Osborne speculating that this was intended to avoid spelling out inevitable post-election cuts.He said: "This morning, Peter Mandelson and Alistair Darling could not even agree on whether there will be a spending review."Now, at lunchtime, the OECD says the Government has got to be more 'ambitious' and more 'explicit' about the need for spending cuts to deal with Labour's debt crisis."

Telegraph"China's banks are veering out of control. The half-reformed economy of the People's Republic cannot absorb the $1,000bn (£600bn) blitz of new lending issued since December.Money is leaking instead into Shanghai's stock casino, or being used to keep bankrupt builders on life support. It is doing very little to help lift the world economy out of slump."

Daily Mail"Mr Brown's government relaunch was overshadowed when Business Secretary Lord Mandelson revealed that the Government is shelving plans to set out Whitehall budgets beyond 2011.....Lord Mandelson pulled rank over Chancellor Alistair Darling by insisting it was currently impossible to forecast how the economy would perform in the months and years ahead. His announcement prompted Cabinet disarray as the Treasury insisted Mr Darling had not made any decisions on the timing of the next spending review.But Mr Cameron said it was typical of a Government determined to 'cover up the truth about cuts'."

Saturday, 27 June 2009

Telegraph"The Government will lend Northern Rock billions more of taxpayer's money than previously disclosed under plans to restructure the nationalised mortgage lender.In documents to the European Commission, the Government also warned it may have to inject more than the planned £3bn of capital "in a stress scenario". "

Telegraph"The Government has been accused of causing "chaos" after it postponed its eagerly awaited White Paper on financial regulation, fuelling fears it is no closer to overhauling the banking system."

Friday, 26 June 2009

Telegraph"For Labour's response to the Governor's wisdom was to say: it is business as usual. Even though there is an unanswerable case that our country is being brought to its knees by over-borrowing, even though it is far from clear that the massive borrowing already engaged in has done anything but keep the public sector and the rest of the clientele shielded from the realities of the Brown economic miracle that the rest of us are having to suffer, that is how Labour proposes to continue."

Telegraph"Because back in 2006 the FSR happened to warn, in quite vivid language (for the Bank) of the possibility of a crisis in the financial sector; it warned that British banks could face a major securitisation freeze in the coming years; it pinpointed the growing gap between what they were lending and what they had in deposits; it warned that this could eat into their profits significantly.The FSR came closer than almost anyone else to diagnosing how the crisis would begin. Unfortunately, no-one took much notice."

Daily Mail"The full horror was revealed in Darling’s April Budget, which has won praise for its honesty but has been the cause of political mayhem because it revealed just how far and how quickly Britain’s public finances had been driven off course.Put bluntly, public expenditure is totally out of control. The Government is spending £4 for every £3 it raises in taxes.The credit ratings agency Standard & Poor’s has already taken the serious step of putting the nation’s debt on special watch.It is this fiscal nightmare which caused King to break ranks with Whitehall."

Thursday, 25 June 2009

Telegraph"Asked about the Government's banking reforms, expected to be set out next week, Mr King said: "I have not been consulted on what will be in the White Paper and I haven't seen a draft of it but no doubt at some point I will. There is still time to be consulted on it before it appears. I'm sure the Chancellor will show it to me before it appears."

Telegraph"The IMF expects Irish GDP to shrink a cumulative 13.5pc in the three years to 2010. It also forecast that Ireland’s budget deficit may widen to 12pc of GDP this year, four times the European Union limit and above the government’s 10.75pc projection. The state will only bring the deficit back to the EU limit in 2014, a year behind target, it said."

Wednesday, 24 June 2009

Daily Mail"'Taking into account the probability of a worse than expected deterioration in the UK's budgetary position in the near term, and the heightened risks to fiscal sustainability, there is a need for a more ambitious consolidation effort in the medium term,' the Commission said.It urged Britain to slash spending or hike taxes in 2010-2011 'and beyond'."

Daily Mail"Bank of England boss Mervyn King today said he was "more uncertain now than ever" about the UK economy despite tentative signs of a recovery. ....He said: 'I feel more uncertain now than ever, because it's not a pattern of a recession coming into recovery that we've seen since the 1930s.' ....Mr King also told the Commons Committee that the Chancellor needed to set tougher goals to reduce the 'extraordinary' UK public deficit."

Telegraph"The UK is mired in a credit crunch that will take years to fix, not months. That gives the government a problem. It cannot rely on recovery to alleviate a deficit soaring towards an unsustainable 13pc of GDP. The state seems certain to be forced to cut public spending or raise taxes before the upturn comes. And those cuts, unlike the BoE’s, will be painful not palliative."

Telegraph"Today is Cost of Government Day. Average taxpayers in Britain now have to work almost half the year – 176 days – to pay their share of the cost of running Gordon Brown’s administration. Every penny we have earned since January 1 has gone to feed the state leviathan. It is only from today that, at last, you have started working for yourselves and your families."

Telegraph"It predicted that UK unemployment, which currently stands at a 12-year high of more than 2.2 million, will "rise substantially" and "labour market conditions will remain unfavourable for a long period".-------------------------------OECD pours cold water on Britain's green shoots

Telegraph"In what would be at least a partial reversion to the supervisory regime that existed prior to Labour's 1997 victory, the Tories would give the Bank significantly more power, pegging back the influence of the Financial Services Authority."

Tuesday, 23 June 2009

Telegraph"The European Commission has urged the Chancellor to start attempting to cut projected levels of government debt from next year – sooner than is projected in the Budget.The call echoes those from the International Monetary Fund, Standard & Poor's and others that the UK must put its books back in order as soon as possible."

Monday, 22 June 2009

Daily Mail"The huge difference between what is raised in tax and what governments spend is in the meantime being met by offloading onto the market shedloads of debt.We did the same after the Second World War, but then our allies were in surplus and only too willing to lend. Today the whole of the G8 group is trying to hoover up loans from all and sundry.Here is the crunch. Will the Government be more successful than other governments in cornering the money all the major nations will need to borrow? If not, it is curtains for the Government and our economy will be in peril. The signs are not good."

Daily Mail"Rancour, partisanship, a figure whose political philosophy dodges round the place like a bouncy ball: yes, folks, the House of cheats and nodding oil derricks just got its perfect Speaker. They went and did the impossible. They voted for someone who could be even worse than Gorbals Mick! Large parts of the Tory benches refused to clap his election and they looked thoroughly sickened, sitting with arms crossed and shaking their heads. Real, gut-churning hatred. Little Squeaker Bercow has his work cut out."

Telegraph"There are still some serious structural weaknesses in the global economy and these cause me to think that any recovery will be weak. My prime concern remains the banking system. ....Meanwhile, the risk of deflation is still very much alive and well. In the UK, pay freezes or even outright cuts in pay are becoming commonplace. If this continues, and firms start to see labour costs, if not fall, at least rise more slowly than productivity, then inflation could drop sharply, even into negative territory."

Sunday, 21 June 2009

Telegraph"QE was always a ruse to recapitalise insolvent banks by the back door, so their powerful executives could avoid admitting previous mistakes. Yet it has shattered the world's faith in the West's policy-making competence. It has destroyed any authority we had to tell economies elsewhere what to do."

Saturday, 20 June 2009

Independent"For those of us with long memories, or just a healthy interest in economic history, the wildcat strikes tearing through the nation's refineries and building sites as a protest are an uncanny reminder of previous waves of "unofficial" industrial militancy, especially in the car industry in the late 1960’s (and we all know the unhappy ending to that tale)."---------------------------Oil workers pick the wrong fight

Thursday, 18 June 2009

Telegraph"Britain's budget deficit hit £19.9bn in May compared with £12.2bn in the same month in 2008, according to figures from the Office for National Statistics. Public sector net borrowing reached £30.5bn for the first two months of the financial year - more than double the level in 2008."

Tuesday, 16 June 2009

Wall Street Journal Europe."Britain's economic downturn began when its house price and household debt bubbles inevitably burst, beginning with the run on Northern Rock in September 2007. These bubbles had swollen to higher levels, relative to average price and income levels respectively, than in the U.S. and other major economies."

Telegraph"Inflation remained unexpectedly above the Bank of England's target last month, with a weak pound helping to drive higher the cost of items like DVDs, clothing and televisions. ....The Consumer Prices Index (CPI) - the Government's preferred measure of inflation - fell to a 16-month low of 2.2pc from 2.3pc in April, but it was a smaller fall than City economists had predicted."

Monday, 15 June 2009

John Redwood MP"There are several difficulties ahead. I have commented before on the problems they face when taking the economy off the monetary drip of quantitative easing. ....There is still a pressing need for many people and companies to repay debt, against the background of weak banks and the need to calm down after the credit binge of 2003-7."

Daily Mail"Research by the prestigious Globalisation and Economic Policy Centre showed how the financial crisis could condemn thousands to half a decade on lower pay. ...Based at the University of Nottingham, GEP is one of the major centres in the world studying the impacts of globalisation and economic policy.Its academics have advised organisations including the Treasury, the Bank of England, the Commonwealth Secretariat and the World Bank.They used information from the Office of National Statistics' Business Data Lab to study a random sample of one per cent of employees in the PAYE scheme."

Telegraph"The European Central Bank has given its starkest warning to date on growing strains in the eurozone credit markets. ....In a ghastly day for Europe's lenders, Moody's downgraded 25 Spanish banks as rising defaults eat into reserves. ....In Germany, the bank-rescue fund Soffin said deep recession was leading to a "massive sharpening" of bank losses on risk assets, endangering the capital base of the financial sector."

Sunday, 14 June 2009

Telegraph"We know from leaked documents that the Fund advised Latvia to ditch the peg last year. IMF experts were overruled by Brussels. The reason, of course, was to prevent: 1) a chain of falling dominoes in Eastern Europe; 2) a default shock for West European banks with $1.6 trillion (£970bn) of exposure to the region; 3) leakage from Bulgaria across the EU line into Greece – euroland's Achilles heel."

Friday, 12 June 2009

Telegraph""This is an extremely serious crisis," said David Heathcote-Amory, former Europe Minister and now a key Tory MP on the European Scrutiny Committee."Once we lose of control over the City of London we will never get it back, and the consequences could be catastrophic. I think we are in 'Luxembourg territory'. If the City was in Paris you could be pretty sure that French would fight like tigers to save it," he said."The Continental countries have no interest in the health of the City, and some want to turn the tourniquet tighter. I fear the Commission is going to get its way since we have such a weak government," he said."

Thursday, 11 June 2009

Telegraph"In a well-timed report for the think tank Civitas, Mervyn Stone, professor of statistics at University College London, accuses the Government of "sidelining honesty and truth in some of its major policy-making decisions". Bingo! He highlights the "research", if it can be so dignified, that led the Home Office in 2004 to predict between 5,000 and 13,000 arrivals a year from the EU's eight new nations. In fact, 600,000 turned up within the first 24 months."

Daily Mail"‘We might now be at the bottom. We thought it was going to be July before this happened. However, it could be three years before we see output back at the level we saw in April 2008.‘There is a lot of pain to come. And there will be long-term scar on the economy because of the problems with the banking system.’Niesr cautioned that a slight upturn in economic output will not prevent further increases in unemployment, which stands at 2.22 million.Mr Barrell expects joblessness to continue rising for another year, as firms continue to axe workers to cut costs."

Tuesday, 9 June 2009

Telegraph"Chancellor Alistair Darling said Britain had upheld the principle that “taxation is clearly a matter for member states”. However, there was no change in the crucial proposal to give EU bodies the ultimate power to override national regulators in areas of banking, insurance and securities."

Monday, 8 June 2009

Telegraph"The International Monetary Fund has called on eurozone governments to take urgent steps to clean up the banking system as losses mount, and advised the European Central Bank to prepare "all unconventional options" in case the crisis deepens."

The Times"Today S&P warned: "The rating could be lowered again if asset quality in the Irish banking system deteriorates at a faster pace than we expect ... and if, as a result of its suport for the sector or due to an even more pronounced downturn in economic growth, the Government's fiscal performance weakens further than we currently assume."

Telegraph"The longer the political uncertainty continues with Prime Minister Brown as a lame duck, the more the pound may suffer as a weak UK government will not be able to present credible solutions for the crisis," analysts at Commerzbank said."

Telegraph"Latvia, which is suffering from the deepest recession in the European Union, is also trying to negotiate a wider Budget deficit with the European Commission and the International Monetary Fund. If not, Valdis Dombrovskis, the Latvian Prime Minister, has warned that the country faces bankruptcy."

Sunday, 7 June 2009

Daily Mail"One reason is that the big Asian economies - China and India - haven't been too badly hit by the global slowdown.China has offset its decline in exports to the West by launching vast infrastructure projects, sucking in more oil.And anyone who has been to an Indian city recently will have been struck by the explosion of middle-class car ownership on top of the millions of scooters."

TelegraphStephen Roach, Morgan Stanley's Far East chief, ..."China's incipient rebound relies on a time-worn stimulus formula: upping the ante on infrastructure spending in anticipation of an eventual rebound of global demand," he said. The strategy cannot work this time because Americans have exhausted their credit, and their desire to borrow. Consumption will fall from its peak of 72pc of GDP to the "pre-bubble norm" of 67pc, if not more." "David Rosenberg from Gluskins Sheff expects ....If he is right, this will shatter the surplus economies of China, Japan, and Germany, unless they adjust fast to the new world order. ....

Telegraph"The Monetary Policy Committee hasn't been truly independent, ....In recent months, though, quantitative easing has destroyed even the pretence of independence. Brown and his henchmen have yanked control back from the Bank – creating money to buy government debt, a policy doomed to backfire."

Friday, 5 June 2009

Daily Mail"Analysts blamed the political turmoil for the loss of confidence in sterling, with fears over a Labour poll drubbing adding to the sense of disquiet caused by a spat within the party.Mr Brown was dealt a further blow today with the resignation of the Work and Pensions Secretary James Purnell and Defence Secretary John Hutton today.Mark O'Sullivan of Currencies Direct said the pound was not likely to recover while the Westminster machinations continued."----------------------------Political chaos see pound take a tumble (Telegraph)

Thursday, 4 June 2009

Telegraph"Sweden is preparing to part-nationalise banks exposed to the economic collapse in Baltic states, raising fears that a string of Western European countries could face similar fallout from rising defaults in the former Communist bloc. .....The dramatic situation in Latvia went from bad to worse on Thursday as overnight rates reached 140pc, a sign that the country's currency peg in Europe's Exchange Mechanism is close to snapping. Credit default swaps measuring risk on Latvian debt rocketed above 750 after Latvia's treasury failed to sell a single note at a $100bn debt auction on Wednesday."

Wednesday, 3 June 2009

Telegraph"Many people in business might actually be relieved Parliament is distracted from the economy. Labour took us into this recession with a record public sector deficit having hit the private sector with any number of anti-business measures. With public borrowing set to hit 12pc of GDP this year, and total national debt soaring to 80pc by 2013-14, it's not immediately clear to me what Parliament could do to fix the economy anyway. The public finances are as good as bust."

Telegraph "In an unprecedented intervention, she cast doubt on whether the plans of the Bank of England, Federal Reserve and European Central Bank to pump cash directly into their economies would succeed, or could be easily unwound."What other central banks have been doing must be reversed. I am very sceptical about the extent of the Fed's actions and the way the Bank of England has carved its own little line in Europe," she said at a conference in Berlin."

Telegraph"Britain needs an emergency Budget immediately after the general election as public spending is set to soar to the highest level in post-war history, a leading think-tank has warned. .....The Policy Exchange has advised the next government that it must be prepared to make radical and immediate cuts to spending plans or face a serious risk of a full-scale sovereign debt crisis. In a new paper, it has also shown that only a third of the impending surge in government spending can be traced back to measures intended to combat the recession, with the rest going on increased budgets for ballooning government departments."

Telegraph“Latvia may be a small country but it has vast repercussions for the region,” said Bartosz Pawlowski, of BNP Paribas. “If the currency breaks in Latvia, it is likely to break in Estonia and Lithuania as well, and perhaps Bulgaria, with effects on other countries like Romania.”

Daily Mail"Gordon Brown's splurge on public services will take Government spending to Soviet levels of almost 50 per cent of national income, a report warns today.But the jump is not down to increased investment to combat the recession, it says.Just six per cent of the rise is going on public works, with around a third down to higher costs of welfare and servicing debt.The rest is the Government's choice to plough more money into schools, hospitals, transport and other public services.

Tuesday, 2 June 2009

Telegraph"QE - the process in which the Bank of England effectively prints money and pumps it directly into the economy - was always going to be a tough one to pull off. The Japanese tried it in the 1990s and any evidence of success is hardly conclusive. And the earliest signs from the UK's own experience are hardly any more encouraging.Today the Bank of England released its mammoth monthly monetary and financial stats book and a dig beneath the numbers uncovers some rather alarming facts about the QE programme and its efficacy. The first is that the so-called leakage of the cash overseas (we first reported on this last month) is gathering pace. .....The one crumb of comfort is for those terrified about the impending threat of Zimbabwe-style hyperinflation: with quantitative easing still not working prices are hardly likely to get out of control. The Japan-style scenario of sticky deflation still looks like the larger long-term threat. At least for the time being."

Monday, 1 June 2009

Telegraph"One might have thought this was the recipe for a sterling crisis. But not at all. ....The market reaction isn't illogical. This is because the political turmoil has increased the chances of both an early election and a Conservative landslide."